The new mediocre
THE launch, a year ago, of the European Central Bank’s programme of quantitative easing (QE—creating money to buy bonds) sparked elation. Growth was picking up, consumers had a spring in their step and stockmarkets were jubilant. A year later spirits are sombre as the recovery flags, stockmarkets languish and deflation returns. After prescribing more medicine in December, the ECB is expected to increase the dose again on March 10th. But there are increasing doubts about its effects.
Consumer prices fell by 0.2% in the year to February (see chart), reinforcing the case for greater stimulus. Though this fall was driven by a renewed collapse in oil prices, the core inflation index, which excludes volatile items such as energy, is also looking wan. Prices rose by just 0.7% in the year to February, among the lowest readings since the euro was born 17 years ago. Despite a year of QE, during which the ECB has bought €60 billion ($65 billion) of bonds a month, it appears to be no closer to its goal of inflation of nearly 2% than when it started.
Unemployment has at least carried on falling, to 10.3% in January, reflecting the…Continue reading